Bottom-Line Blues

Is ethical business only a dream?

by Mary Scott

| January-February 1997

When Robert Holland resigned last fall as CEO of Ben & Jerry’s Homemade Inc., it capped a nightmarish two-year period for the socially responsible business movement. Since the Business Ethics exposé on Anita Roddick and The Body Shop in September 1994, some of the movement’s most celebrated companies—including Nike, Levi Strauss, and Esprit—have come under attack by critics who question their corporate practices, and the Clinton administration’s push to reward good corporate citizens with tax cuts seems doomed.

But the movement’s current difficulties are perhaps best personified by Holland’s resignation, barely 19 months after succeeding co-founder Ben Cohen at the helm of America’s best-known socially responsible company. Holland was hired to help push the struggling company into its next growth phase, but he sparred repeatedly with Cohen over political values. (Cohen refused to enter the French market because he disagreed with that country’s nuclear testing policies; he balked at launching a line of sorbet because it wouldn’t help Vermont’s dairy farmers.) Ten years ago, Cohen and his company didn’t have to deal with such issues; they could afford to practice their politics. Today, as a publicly owned company with flattened earnings, the pressure to leave political values at the door is intense.

Businesses like Ben & Jerry’s are realizing that to be socially responsible in the 1990s is not as simple as it was in the 1980s, when setting up a recycling program often merited some kind of corporate conscience award. Companies that go public, are sold to outside investors, merge with other businesses, and feel the increased competition of businesses based less on values increasingly face an unnerving conflict between their social values and their bottom line. And as companies like Ben & Jerry’s grow larger, the founder’s values often don’t reach the margins of the organization.

Take the clothing industry. Many businesses—particularly ones that have been public about their social missions—are being pressured to be responsible not only for their own actions, but also for the practices of their subcontractors. Former Labor secretary Robert Reich, for instance, recently forced apparel companies and retailers to more effectively police their overseas subcontractors. Yet even companies with established (albeit voluntary) conduct codes for overseas suppliers face conflict. “A buyer for Liz Claiborne recently canceled a Sri Lankan factory order because the factory’s poor lighting didn’t meet the company’s health and safety code,” writes Richard Rothstein in The American Prospect (July-Aug. 1996). “The buyer then contracted with a Hong Kong intermediary who, in turn, orders from the very Sri Lankan factory that the buyer himself just canceled. Now it’s the intermediary’s responsibility to verify compliance, not the Claiborne buyer’s.”

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Perhaps the real problem lies not with the company but with larger economic structures, writes David Korten in Business Ethics (May-June 1996). “All this focus on measures like recycling, cleaning up emissions, contributing to local charities, or providing day care sounds noble, but it’s little more than fiddling at the margins of a deeply dysfunctional system,” Korten maintains. “The heads of our most powerful corporations serve an unforgiving master: a global financial system hell-bent on maximizing short-term financial returns to shareholders. Given this system, it is all but impossible to manage for social responsibility.”

Similarly, Rothstein points out in The American Prospect the limitations of enforcing voluntary codes established by companies conducting business in developing countries. “Each [code] depends on public attention and consumer pressure focused on a single country or distinct part of the broader labor standards constellation. But there is a limit to consumers’ ability to juggle multiple boycotts, while code violations by distinct companies or in distinct countries are too numerous to count.” The solution, he says, includes establishing outside monitors.

Others cite the need to change corporate statutes. “We must look at global charters at both the national and international level,” says Hazel Henderson, author of Building a Win Win World: Life Beyond Global Economic Warfare (Berrett-Koehler, 1996) and a member of Calvert Social Investment Fund’s advisory council. “A company’s management is stymied by the corporation’s inherent and limiting structure intended only to maximize profits for stockholders. Period. The corporate charter needs to change to include all stakeholders, including employees, suppliers, neighborhoods, and citizens.”

And, in light of increased globalization, a move to support local enterprises is gaining favor. David Korten points out that right now “finance is separated from community. . . . We must restructure the system to create a strong positive bias in favor of smaller, locally owned enterprises that operate responsibly.”

In that sort of system, Bernard Avishai argues in The American Prospect, the good corporate citizen would have a decidedly different role than it has today. “If we are to have a new social compact, it will not be between employers and employees, but between local governments that mentor our children and corporations that create the wealth and help set the standards for them.”